UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

3 December 2019

Commission File Number: 001-10691

 

 

DIAGEO plc

(Translation of registrant’s name into English)

 

 

Lakeside Drive, Park Royal, London NW10 7HQ

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

 

 

 

3 December 2019

Change in method for calculating organic non-GAAP measures

Diageo announced, at its Capital Markets Day on 22 May 2019, that it would change its method of calculating organic growth for periods beginning with the six months ending 31 December 2019. Organic growth is a non-GAAP financial measure. See ‘Explanatory Notes’ below for an explanation and reconciliation of non-GAAP measures.

Going forward, Diageo will calculate the exchange adjustment included in the organic movement calculation by translating the current period results at the prior period weighted average exchange rates. Previously, Diageo had calculated the exchange adjustment included in the organic calculation by translating the prior period results at the current period exchange rates.

This change in methodology will significantly simplify Diageo’s internal reporting processes by more closely aligning its calculation of organic movements with its internal management reporting. Diageo also believes this methodology will allow investors to better compare Diageo’s organic movements with its peer group listed on page 92 of the Annual Report 2019.

Exchange impacts in respect of the external hedging of the intergroup sales of products and the intergroup recharging of third party services will continue to be allocated to the geographical segment to which they relate. Any residual exchange impacts will continue to be reported in Corporate. Results from markets that have hyperinflationary economies are translated at respective years’ actual rates. As a result, no exchange difference is reported. Under the revised methodology, the adjustments included in respect of Acquisitions and Disposals in the organic reconciliation, calculated at the prior period’s weighted average rate, have not changed materially.

Organic growth for sales, net sales, marketing and operating profit for the years ended 30 June 2019 and 2018 and for the six month period ended 31 December 2018 are set out in the tables below under both the prior methodology and the new methodology with no significant difference for all periods, geographical segments and key categories:

 

2

Explanatory notes

Definitions and reconciliation of non-GAAP measures to GAAP measures

Diageo’s strategic planning process is based on certain non-GAAP measures, including organic movements. These non-GAAP measures are chosen for planning and reporting, and some of them are used for incentive purposes. The group’s management believes these measures provide valuable additional information for users of the financial statements in understanding the group’s performance. These non-GAAP measures should be viewed as complementary to, and not replacements for, the comparable GAAP measures and reported movements therein.

Organic movements

Organic information is presented using pounds sterling amounts on a constant currency basis excluding the impact of exceptional items and acquisitions and disposals. Organic measures enable users to focus on the performance of the business which is common to both years and which represents those measures that local managers are most directly able to influence.

Calculation of organic movements under new methodology

The organic movement percentage is the amount in the row titled ‘Organic movement’ in the tables below, expressed as a percentage of the absolute amount in the associated relevant row titled ‘adjusted’. Organic operating margin is calculated by dividing operating profit before exceptional items by net sales after excluding the impact of exchange rate movements and acquisitions and disposals.

(a) Exchange rates

‘Exchange’ in the organic movement calculation reflects the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.

Exchange impacts in respect of the external hedging of inter group sales by the markets in a currency other than their functional currency and the inter group recharging of services are also translated at prior period weighted average exchange rates and are allocated to the geographical segment to which they relate. Residual exchange impacts are reported as part of the Corporate segment.

(b) Acquisitions and disposals

For acquisitions in the current period, the post acquisition results are excluded from the organic movement calculations. For acquisitions in the prior period, post acquisition results are included in full in the prior period but are included in the organic movement calculation from the anniversary of the acquisition date in the current period. The acquisition row also eliminates the impact of transaction costs that have been charged to operating profit in the current or prior period in respect of acquisitions that, in management’s judgement, are expected to be completed.

Where a business, brand, brand distribution right or agency agreement was disposed of, or terminated, in the period up to the date of the external results announcement, the group, in the organic movement calculations, excludes the results for that business from the current and prior period. In the calculation of operating profit, the overheads included in disposals are only those directly attributable to the businesses disposed of, and do not result from subjective judgements of management.

 

3

(c) Exceptional items

Exceptional items are those that in management’s judgement need to be disclosed by virtue of their size and/or nature. Such items are included within the income statement caption to which they relate, and are separately disclosed in the notes to the consolidated financial statements, and are excluded from the organic movement calculations.

Exceptional operating items are those that are considered to be material and/or unusual or non-recurring in nature and are part of the operating activities of the group such as impairments of fixed assets, indirect tax settlements, property disposals and changes in post-employment plans.

Gains and losses on the sale of businesses, brands or distribution rights, step up gains and losses that arise when an investment becomes an associate or an associate becomes a subsidiary and other material, unusual non-recurring items, that are not in respect of the production, marketing and distribution of premium drinks, are disclosed as non-operating exceptional items below operating profit in the consolidated income statement.

Exceptional current and deferred tax items, comprising material unusual non-recurring items, impact taxation. Examples include, direct tax provisions and settlements in respect of prior years and the remeasurement of deferred tax assets and liabilities following tax rate changes.

It is believed that separate disclosure of exceptional items and the classification between operating and non-operating items further helps investors to understand the performance of the group.

 

4

Organic movement calculations for the year ended 30 June 2019 under both the new and old methodologies were as follows:

Year ended 30 June 2019

 

As calculated under new methodology
		North America £ million				Europe and Turkey £ million				Africa £ million				Latin America and Caribbean £ million				Asia Pacific £ million				Corporate £ million				Total £ million
Sales
2018 reported			4,671				5,232				2,083				1,352				5,042				52				18,432
Exchange			(34	)			(1	)			(4	)			5				(17	)			(1	)			(52	)
Disposals			(175	)			(7	)			(4	)			(1	)			(10	)			—				(197	)
2018 adjusted			4,462				5,224				2,075				1,356				5,015				51				18,183
Organic movement			239				223				145				127				461				3				1,198
Acquisitions and disposals			133				2				2				1				1				—				139
Exchange			240				(317	)			13				(40	)			(121	)			(1	)			(226	)
2019 reported			5,074				5,132				2,235				1,444				5,356				53				19,294
Organic movement %			5				4				7				9				9				6				7
Net sales
2018 reported			4,116				2,932				1,491				1,069				2,503				52				12,163
Exchange			(28	)			(4	)			(4	)			3				(8	)			(1	)			(42	)
Disposals			(136	)			(3	)			(3	)			(1	)			(6	)			—				(149	)
2018 adjusted			3,952				2,925				1,484				1,071				2,489				51				11,972
Organic movement			206				113				104				89				231				3				746
Acquisitions and disposals			93				—				1				1				1				—				96
Exchange			209				(99	)			8				(31	)			(33	)			(1	)			53
2019 reported			4,460				2,939				1,597				1,130				2,688				53				12,867
Organic movement %			5				4				7				8				9				6				6
Marketing
2018 reported			662				474				158				196				388				4				1,882
Exchange			(5	)			(4	)			1				—				(2	)			—				(10	)
Reclassification			—				—				10				—				—				—				10
Disposals			(1	)			—				—				—				—				—				(1	)
2018 adjusted			656				470				169				196				386				4				1,881
Organic movement			71				27				4				11				27				(1	)			139
Acquisitions and disposals			2				—				—				—				—				—				2
Exchange			33				(7	)			1				(6	)			(1	)			—				20
2019 reported			762				490				174				201				412				3				2,042
Organic movement %			11				6				2				6				7				(25	)			7
Operating profit
2018 reported			1,882				1,028				191				308				568				(158	)			3,819
Exchange			(23	)			(3	)			6				—				(3	)			6				(17	)
Acquisitions and disposals			(85	)			(2	)			(2	)			—				(2	)			—				(91	)
2018 adjusted			1,774				1,023				195				308				563				(152	)			3,711
Organic movement			62				29				77				67				148				(44	)			339
Acquisitions and disposals			30				(1	)			—				—				—				(1	)			28
Exchange			82				(37	)			3				(10	)			(8	)			8				38
2019 reported			1,948				1,014				275				365				703				(189	)			4,116
Organic movement %			3				3				39				22				26				(29	)			9
Organic operating margin
2019			44.2	%			34.6	%			17.1	%			32.3	%			26.1	%			n/a				31.8	%
2018			44.9	%			35.0	%			13.1	%			28.8	%			22.6	%			n/a				31.0	%
Margin improvement/(decline) (bps)			(73	)			(35	)			399				357				352				n/a				85

As calculated under old methodology
		North America £ million				Europe and Turkey £ million				Africa £ million				Latin America and Caribbean £ million				Asia Pacific £ million				Corporate £ million				Total £ million
Sales
2018 reported			4,671				5,232				2,083				1,352				5,042				52				18,432
Exchange			200				(291	)			12				(35	)			(120	)			—				(234	)
Disposals			(185	)			(7	)			(4	)			(1	)			(10	)			—				(207	)
2018 adjusted			4,686				4,934				2,091				1,316				4,912				52				17,991
Organic movement			249				195				142				127				443				1				1,157
Acquisitions and disposals			139				3				2				1				1				—				146
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2019 reported			5,074				5,132				2,235				1,444				5,356				53				19,294
Organic movement %			5				4				7				10				9				2				6
Net sales
2018 reported			4,116				2,932				1,491				1,069				2,503				52				12,163
Exchange			176				(95	)			8				(29	)			(36	)			—				24
Disposals			(143	)			(3	)			(3	)			(1	)			(6	)			—				(156	)
2018 adjusted			4,149				2,834				1,496				1,039				2,461				52				12,031
Organic movement			216				104				100				90				226				1				737
Acquisitions and disposals			95				1				1				1				1				—				99
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2019 reported			4,460				2,939				1,597				1,130				2,688				53				12,867
Organic movement %			5				4				7				9				9				2				6
Marketing
2018 reported			662				474				158				196				388				4				1,882
Exchange			24				(10	)			1				(7	)			(3	)			—				5
Reclassification			—				—				10				—				—				—				10
Disposals			(1	)			—				—				—				—				—				(1	)
2018 adjusted			685				464				169				189				385				4				1,896
Organic movement			75				26				5				12				27				(1	)			144
Acquisitions and disposals			2				—				—				—				—				—				2
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2019 reported			762				490				174				201				412				3				2,042
Organic movement %			11				6				3				6				7				(25	)			8
Operating profit
2018 reported			1,882				1,028				191				308				568				(158	)			3,819
Exchange			74				(35	)			(6	)			(2	)			(6	)			—				25
Acquisitions and disposals			(90	)			(2	)			(2	)			—				(2	)			—				(96	)
2018 adjusted			1,866				991				183				306				560				(158	)			3,748
Organic movement			52				22				91				59				143				(31	)			336
Acquisitions and disposals			30				1				1				—				—				—				32
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2019 reported			1,948				1,014				275				365				703				(189	)			4,116
Organic movement %			3				2				50				19				26				(20	)			9
Organic operating margin
2019			43.9	%			34.5	%			17.2	%			32.3	%			26.2	%			n/a				32.0	%
2018			45.0	%			35.0	%			12.2	%			29.5	%			22.8	%			n/a				31.2	%
Margin improvement/(decline) (bps)			(103	)			(49	)			494				288				341				n/a				83

 

 

5

Organic movement calculations for the six months ended 31 December 2018 under the new and old methodologies were as follows:

Six months ended 31 December 2018

 

As calculated under new methodology
		North America £ million				Europe and Turkey £ million				Africa £ million				Latin America and Caribbean £ million				Asia Pacific £ million				Corporate £ million				Total £ million
Sales
2017 reported			2,467				2,887				1,088				840				2,625				27				9,934
Exchange			(70	)			(45	)			(10	)			(14	)			(61	)			(1	)			(201	)
Reclassification			1				12				—				—				(13	)			—				—
Disposals			(92	)			(4	)			(2	)			—				(9	)			—				(107	)
2017 adjusted			2,306				2,850				1,076				826				2,542				26				9,626
Organic movement			143				193				74				59				292				2				763
Acquisitions and disposals			88				3				2				1				1				—				95
Exchange			130				(167	)			8				(22	)			(70	)			—				(121	)
2018 reported			2,667				2,879				1,160				864				2,765				28				10,363
Organic movement %			6				7				7				7				11				8				8
Net sales
2017 reported			2,183				1,599				774				649				1,298				27				6,530
Exchange			(63	)			(17	)			(9	)			(11	)			(22	)			(1	)			(123	)
Reclassification			1				12				—				—				(13	)			—				—
Disposals			(72	)			(2	)			(2	)			—				(5	)			—				(81	)
2017 adjusted			2,049				1,592				763				638				1,258				26				6,326
Organic movement			125				86				50				49				156				2				468
Acquisitions and disposals			69				1				1				1				1				—				73
Exchange			113				(46	)			7				(16	)			(17	)			—				41
2018 reported			2,356				1,633				821				672				1,398				28				6,908
Organic movement %			6				5				7				8				12				8				7
Marketing
2017 reported			338				246				83				109				188				4				968
Exchange			(4	)			—				4				(2	)			(3	)			(2	)			(7	)
Reclassification			(1	)			—				—				1				—				—				—
Disposals			(1	)			—				—				—				—				—				(1	)
2017 adjusted			332				246				87				108				185				2				960
Organic movement			30				18				4				7				25				(1	)			83
Acquisitions			2				—				—				—				—				—				2
Exchange			19				(4	)			—				(5	)			(2	)			1				9
2018 reported			383				260				91				110				208				2				1,054
Organic movement %			9				7				5				6				14				(50	)			9
Operating profit
2017 reported			1,027				599				120				218				316				(90	)			2,190
Exchange			(22	)			(9	)			1				(3	)			(7	)			11				(29	)
Reclassification			1				9				—				(1	)			(9	)			—				—
Acquisitions and disposals			(43	)			(1	)			(1	)			—				(1	)			—				(46	)
2017 adjusted			963				598				120				214				299				(79	)			2,115
Organic movement			39				38				31				47				112				(7	)			260
Acquisitions and disposals			42				1				1				—				—				—				44
Exchange			57				(23	)			1				(7	)			(2	)			6				32
2018 reported			1,101				614				153				254				409				(80	)			2,451
Organic movement %			4				6				26				22				37				(9	)			12
Organic operating margin
2018			46.1	%			37.9	%			18.6	%			38.0	%			29.1	%			n/a				35.0	%
2017			47.0	%			37.6	%			15.7	%			33.5	%			23.8	%			n/a				33.4	%
Margin improvement/ (decline) (bps)			(91	)			34				285				445				530				n/a				152

As calculated under old methodology
		North America £ million				Europe and Turkey £ million				Africa £ million				Latin America and Caribbean £ million				Asia Pacific £ million				Corporate £ million				Total £ million
Sales
2017 reported			2,467				2,887				1,088				840				2,625				27				9,394
Exchange			52				(193	)			(1	)			(47	)			(125	)			—				(314	)
Reclassification			1				12				—				—				(13	)			—				—
Disposals			(97	)			(4	)			(3	)			—				(9	)			—				(113	)
2017 adjusted			2,423				2,702				1,084				793				2,478				27				9,507
Organic movement			151				174				74				70				286				1				756
Acquisitions and disposals			93				3				2				1				1				—				100
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2018 reported			2,667				2,879				1,160				864				2,765				28				10,363
Organic movement %			6				6				7				9				12				4				8
Net sales
2017 reported			2,183				1,599				774				649				1,298				27				6,530
Exchange			44				(60	)			(1	)			(35	)			(39	)			—				(91	)
Reclassification			1				12				—				—				(13	)			—				—
Disposals			(75	)			(2	)			(2	)			—				(5	)			—				(84	)
2017 adjusted			2,153				1,549				771				614				1,241				27				6,355
Organic movement			130				83				49				57				156				1				476
Acquisitions and disposals			73				1				1				1				1				—				77
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2018 reported			2,356				1,633				821				672				1,398				28				6,908
Organic movement %			6				5				6				9				13				4				7
Marketing
2017 reported			338				246				83				109				188				4				968
Exchange			10				(7	)			3				(6	)			(4	)			—				(4	)
Reclassification			(1	)			—				—				1				—				—				—
Disposals			(1	)			—				—				—				—				—				(1	)
2017 adjusted			346				239				86				104				184				4				963
Organic movement			36				21				5				6				24				(2	)			90
Acquisitions			1				—				—				—				—				—				1
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2018 reported			383				260				91				110				208				2				1,054
Organic movement %			10				9				6				6				13				(50	)			9
Operating profit
2017 reported			1,027				599				120				218				316				(90	)			2,190
Exchange			39				(25	)			(2	)			(7	)			(3	)			(2	)			—
Reclassification			1				9				—				(1	)			(9	)			—				—
Acquisitions and disposals			(46	)			(1	)			(1	)			—				(1	)			—				(49	)
2017 adjusted			1,021				582				117				210				303				(92	)			2,141
Organic movement			36				31				35				44				106				12				264
Acquisitions and disposals			44				1				1				—				—				—				46
Exchange			n/a				n/a				n/a				n/a				n/a				n/a				n/a
2018 reported			1,101				614				153				254				409				(80	)			2,451
Organic movement %			4				5				30				21				35				13				12
Organic operating margin			%				%				%				%				%				%				%
2018			46.3	%			37.6	%			18.5	%			37.9	%			29.3	%			n/a				35.2	%
2017			47.4	%			37.6	%			15.2	%			34.2	%			24.4	%			n/a				33.7	%
Margin improvement/ (decline) (bps)			(112	)			(1	)			336				365				486				n/a				152

 

 

6